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(solution) I am having trouble with Sensitivity, can someone help explain


I am having trouble with Sensitivity, can someone help explain how to find B-2 and C? (I've solved A and B-1

We are evaluating a project that costs $644,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $37, variable cost per unit is $21, and fixed costs are $725,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project.

a.

Calculate the accounting break-even point. (Do not round intermediate calculations and round your final answer to nearest whole number. (e.g., 32))


  Break-even point

50343.75 units

b-1

Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answers to 2 decimal places. (e.g., 32.16))


   
  Cash flow  

$2,84,925

  NPV

$6,34,550


b-2

What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))


  ?NPV / ?Q $   
c. What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)
  ?OCF / ?VC $   


 


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Sep 13, 2020

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